Each of these issues must be addressed in order to implement a comprehensive HCL strategy that increases the availability of trasformative therapies and incentivizes their development.

Issue

Comment

Low median income and/or poor credit of some patients

A subset of patients would continue to “fall through the cracks” that exist in any multipayer system. Government guarantees, rebates, or incentives could address this gap, as in the case of mortgages, student loans, and other forms of consumer finance.

Economic externalities of infections such as HCV

An “externality” refers to a cost or a benefit affecting an individual who has not chosen that cost or benefit. An infectious disease imposes a negative externality on infected individuals, and eradicating such a disease provides a positive externality on all who would be exposed to infection. These externalities have implications for policy decisions and have not been considered in our analysis.

Differences between U.S. and foreign pricing

U.S. drug prices are among the highest in the world. Thus, proposing that U.S. patients assume larger copayments seems even more inequitable. There are many factors that cause U.S. prices to be higher than those in other countries, including the fact that our multipayer health care system is based on principles of competition and free-market pricing. One benefit of such a system is that transformative therapies are often available first to U.S. patients and, in some cases, unavailable in single-payer countries. The consequence of such access is higher U.S. prices, which can be interpreted as U.S. patients subsidizing drugs for non-U.S. patients. These price differences have political and ethical implications that are outside the scope of our analysis.

Impact of price increases owing to a larger market resulting from HCLs

HCLs could cause drug prices to increase in the short term because of increased demand for therapies that were previously unaffordable. Over longer terms, the price impact of HCLs is unclear given countervailing forces, such as increased competition due to greater incentives for producing transformative therapies, greater negotiating power via HCL lenders, and cheaper financing of copayments. There may also be unintended income-distributional consequences of the emergence of liquid HCL markets—for example, the lowest-income patients getting priced out of certain therapies, even as middle-class patients gain greater access. These effects must be monitored carefully and may require government intervention, as in other consumer-finance contexts such as housing and education.

Limitations of consumer credit risk model

Our proposed statistical model for the financial risk of HCLs can be improved by use of proprietary data available only to payers. For example, one regional insurer may tend to attract healthier policyholders, whereas another insurer may be subject to the opposite tendency; such selection biases could affect statistical estimates of HCL default rates. Publicly available data on student loans and other consumer financing might not fully capture such risks of HCLs.

Misaligned incentives

To avoid problematic practices from the recent financial crisis, approaches such as a risk-retention policy should be considered. This would impose partial ownership of each securitization on the issuer (the bank) and thereby align stakeholder interests.

Limitations on default

Since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, consumers with student loans are prevented from defaulting by excluding them from bankruptcy proceedings except in cases of “undue hardship.” This feature of the student loan market has received mixed reviews from various stakeholders. Some argue that it is essential protection for consumers who are unable to afford the legal expense of bankruptcy proceedings. Others counter that it is tantamount to indentured servitude and subsidizes lenders by reducing default risk at the expense of borrowers and taxpayers. Almost by definition, many patients face “undue hardship”; hence, preventing those with HCLs from declaring bankruptcy is unlikely to be either practical or socially acceptable.

Tracking value over the amortization period

Systems, metrics, and legal frameworks currently do not exist for determining ongoing patient benefit, but are necessary for the implementation of health-contingent amortization payment agreements. These elements are likely to emerge rapidly to support HCL markets as they grow and become more liquid. Privacy issues must be balanced with requirements for tracking individual outcomes.